Market reacts sharply to proposed cap-and-trade overhaul

May 8, 2017 by Ronjoy Bezbarua

CCA prices fell significantly last week, after the previous week’s positive performance. Reacting strongly to Wieckowski’s proposed Senate Bill announced last Monday, the current front (May 17) dropped USD 0.19 on the previous week’s close by Wednesday. The bill which proposes a complete overhaul of the current program starting from 2021 and the abolishment of banked allowances, triggered large volumes of allowances to trade hands as those perceiving the bill to be of great threat eager to sell off surplus allowances.

The weeks traded volumes reached a significant 12,133,000 tons with a number of entities willing to take on the increased regulatory risk and capitalise on a lower CCA price. Volumes were up 128% on the previous week. The contribution of the current vintage-V2017 increased to 95.63% with 11,603,000 tons traded which, almost double that of the the previous weeks. V2016 and V2018 also saw trading this week with 80,000 tons and 450,000 tons traded respectively. Despite the higher overall volumes, trading reduced by half for the V2018 vintage. The V2015 and V2019 vintages did not see any volumes traded last week despite positive performances on the week before.

In terms of delivery, the contribution was far more spread out than the week before. Volumes on the current benchmark (Dec 17) rose by 67.2% to 6,248,000 tons however its overall contribution declined to 51.5%. The other contracts were spread between the current front (May 17), Jun 17, Sep 18 and Dec 18 with a share of 23.08%, 12.24%, 51.5%, 8.24% and 4.95%, respectively. Volumes for the current front after the front change the week before started off at 2,800,000 tons.  Volumes for all other delivery periods increased  with trading commencing for Sept17 after an absence of trade the week before with 1,000,000 tons traded.

Open interest creation continued to increase with a net change of 2,284,000 contracts. The majority of the contribution was attributed to the current front, with 2,240,000 contracts created. Conversely, the current benchmark saw a reduction of 356,000 contracts. Open interest for Jun 17 and Dec 18 also saw a positive change at 250,000 and 150,000 contracts created.

The prices for the current benchmark, Dec 17, fell throughout the week with a weekly average of USD 14.21 and closed at a low of USD 14.14. The closing price for last week was lower by USD 0.24 as compared to the week before. The weekly average also fell by USD 0.11. Ontario’s carbon market was not insulated from the impact felt on CA’s market, dropping CAD 0.17 by Tuesday. Although showing signs of midweek recovery, the OCA contract closed the week at CAD 19.35 – USD 14.11 based on Friday’s exchange rate.

Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

Billy Hamshaw (billy@californiacarbon.info)

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